The Fed is going to hike rates regardless if Biden’s nominees are confirmed, economists say

Federal Reserve Chairman Jerome Powell left a meeting in Sen. Chris Van Hollen’s Hart Building, Wednesday, October 6, 2021.
Tom Williams, CQ Roll Call, Inc.| CQ-Roll Call, Inc. | Getty Images

While there may be many reasons for President Joe Biden to nominate Federal Reserve nominees, economists warn that concerns about the central bank’s inability to control inflation should not be one of them.

Three economists speaking with CNBC said it was almost certain the Fed would raise interest rates next week to counter rising prices even though Sarah Bloom Raskin and Lisa Cook are still being confirmed by the Senate.

Jason Furman, the former chair of Council of Economic Advisers during the Obama administration, stated that the Fed will “raise rates in March.” The question now is whether they will raise rates by 25 or 50 basis points.

In recent days, top Democrats and the White House raised concern that the Fed will lose its advantage in rising prices if it doesn’t have a full-staffed board of Fed governors. Economists said that this messaging was politically motivated, and the Fed’s ability to control inflation is not tied to the confirmation process.

Democrats from the Senate Banking Committee are dissatisfied with an ongoing Republican boycottThey are unable to advance all five nominees for the Fed president, which includes current board members Lael Brainard and Chair Jerome Powell.

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GOP claims that the primary reason for their blockade was because of concerns over Raskin and her views about climate policy, as well as her past work at Reserve Trust, a fintech company.

However, economists that track the inflation outlook claim the Fed has the ability to control inflation even though politics can be messy.

Furman suggested that legislators should be encouraged by the Fed’s already-telegraphed rate increases.

“I don’t think.” [the nominees]”It will dramatically alter the direction of monetary policies one way or another in the near future,” Furman said about Jefferson, Cook, and Raskin.

CNBC was asked by the White House to comment on a January statement from Janet Yellen, Treasury Secretary. It included information about President Donald Trump’s presidential nominees.

These nominees are certain to continue that momentum. “I know these people will work hard to combat inflation, strengthen the labor market, and ensure that our economic growth benefits everyone,” Yellen declared on January 14.

She added that she strongly believed that the Federal Reserve must be fully-staffed to ensure economic success.

Congress has assigned the Fed, the world’s largest central bank, to boost employment and maintain inflation under control through adjustment of interest rates. The Fed tends raise borrowing costs when the economy is overheating and cuts rates during economic hardship.

The Covid-19 pandemic that swept the globe and caused thousands to lose their homes forced them to cut rates to almost zero by the spring 2020. The Fed expects to increase borrowing costs throughout 2022, despite the availability of vaccines and an annualized inflation rate north at 7%.

The FedWatch tool by the CME Group shows that 71% believe there is a chance it will increase overnight lending to 25 basis points. However, 29% of investors think they can go large with a 50-basis point jump.

However, Republicans are holding back the confirmation process for the nominees. Some Democrats suggest that the Fed may not be able to contain the inflation.

“Everyone understands we need a full Federal Reserve Board — the first one in nearly a decade — to tackle inflation and bring prices down for American families,” Jen Psaki, the White House press secretary, said on Wednesday.

This sentiment was repeated by Senator Sherrod Brown, who is the Chairman of the Senate Banking Committee and attempting to make the nominations for the president to the larger Senate.

Brown (D-Ohio) also mentioned the GOP boycott ongoing and Republican Senator Pat Toomey’s request to keep Raskin in custody for further questioning.

Brown stated in a Thursday press release that “ranking member Toomey is hindering our fight against inflation”

Moody’s Analytics economist Mark Zandi, who said that he enjoyed all Biden’s nominations but that he was certain the Fed would hike next month, stated that Thursday.

“Oh yeah. This is a great move. The question is how many rate rises they will have this year. And for the March meeting whether they should opt for a fifty-basis-point or quarter-point raise,” Zandi said, Moody’s Analytics chief economist.

Zandi indicated that he believes there are many reasons for these nominees to be approved. But fighting inflation would be at the bottom of my list.

Michael Feroli (chief economist at JPMorgan) went further.

He said Thursday evening, that Jefferson’s addition to the Fed governing board of Raskin Cook and Jefferson would make them more “dovish,” which means they are more likely to favour monetary policy and lower interest rates.

In an email, he stated that “The Board and Committee are able to operate perfectly without the confirmations.” “It is not like three more doves will accelerate the hiking cycle.”

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